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U.S. Flood-Insurance Program Faces $9 Billion Harvey Hit, Exhausting Funds

Bradley Keoun

Homeowners in Texas and Louisiana hit by Hurricane Harvey could file flood-insurance claims of up to $9.5 billion, an amount that would exhaust the funding of the federal program that provides most coverage.

CoreLogic Inc. , which estimates losses for big insurance providers, said insured flood losses for homes in the 70 counties in Texas and Louisiana affected by the storm could total $6.5 billion to $9.5 billion, based on the latest estimates from Irvine, California-based CoreLogic. All but $500 million of that would fall to the Federal Emergency Management Agency's National Flood Insurance Program, or NFIP. 

The high end of the range would burn through the program's $7.5 billion of cash and available credit. The 49-year-old government program, which provides about 98% of residential flood insurance, already is about $25 billion in debt to the U.S. Treasury Department and would need Congressional authorization for additional funding.

The potential funding shortfall heightens pressure on Congress to act quickly this month to shore up the financially-troubled flood-insurance program, even as lawmakers grapple with raising the legislatively-mandated $20 trillion cap on the national debt and face deadlines to authorize new spending to avert a government shutdown. President Donald Trump has threatened a shutdown if Congress doesn't allocate funds for a border wall with Mexico, and he's also pushing for big tax cuts that would widen the budget deficit, at least in the short term.

Adding to the pressure is a looming Sept. 30 deadline to pass new legislation keeping the NFIP intact. Without it, the entire program would lapse.

Some Republican lawmakers are raising the possibility that a disaster-relief bill could be attached to a measure increasing the debt-limit, to assure quick passage, the Wall Street Journal reported Friday. The article didn't specify whether additional funding for the flood-insurance program would be included.

Roy Wright, who oversees the NFIP as a deputy associate administrator at the Federal Emergency Management Agency, said in an interview this week that he's been consulting with congressional leaders on the program's financial troubles, adding that the issue is so crucial that he's confident additional funding will be forthcoming.

"Congress has never turned its back on flood-insurance policyholders before, and I can't imagine them doing that now," Wright said.

CoreLogic, in its report late Thursday, noted that some $18 billion to $27 billion of likely flood damages aren't covered by any insurance policies, meaning those homeowners would bear the full brunt or have to rely on emergency government aid.

Wind damage probably inflicted $1 billion to $2 billion of insured losses, which wouldn't be covered by the NFIP, CoreLogic said. Much of the windstorm coverage in Texas is provided through a state program, the Texas Windstorm Insurance Association. 

For the first few decades of its existence, the federal flood-insurance program was mostly able to cover claims with premiums collected from policyholders -- just as most private insurance companies do. More recently, so many storms have slammed the U.S. coastlines that the revenue no longer covers the costs.

The triple-hit of Hurricanes Katrina, Rita and Wilma in 2005, along with Hurricane Sandy in 2012 and Hurricane Matthew last year, forced the NFIP to borrow heavily from the U.S. Treasury, and Congress has increased the program's borrowing authority several times to the current $30.4 billion.

The Department of Homeland Security, which includes FEMA, openly acknowledges that many policies are subsidized, a practice that critics slam as a taxpayer giveaway to homeowners in flood-prone areas.

Here's the next hurricane.

In 2012, former President Barack Obama signed the Biggert-Waters Flood Insurance Reform Act, setting a timeline for raising premiums deemed too low for the flood risk. Just two years later, amid an outcry from affected policyholders, Congress passed and Obama signed the Homeowner Flood Insurance Affordability Act, repealing many of the premium increases and in some cases even paying out refunds.

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